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PVH earnings call for the period ending April 30, 2018.

Contents:

Prepared Remarks

Questions and Answers

Call Participants

Prepared Remarks:

Operator

Good morning, everyone, and welcome to the PVH Corp. First Quarter 2018 Earnings Conference Call. This webcast and conference call is being recorded on behalf of PVH and consists of copyrighted material. It may not be recorded, rebroadcast or otherwise used without PVH's written permission. Your participation in the question-and-answer session constitutes your consent to having anything you say appear on any transcript or replay of this call.

The information being made available includes forward-looking statements that reflect PVH's view as of May 30, 2018 of future events and financial performance. These statements are subject to risk and uncertainties indicated in the company's SEC filings and the Safe Harbor statement included in the press release that is a subject of this call.

These risks and uncertainties include PVH's right to change its strategies, objectives, expectations, and intentions, and its need to use significant cash flow to service its debt obligations. Therefore, the company's future results of operations could differ materially from historical results or current expectations. PVH does not undertake any obligation to update publicly any forward-looking statement, including, without limitation, any estimate regarding revenue or earnings.

Generally, the financial information and guidance provided is on a non-GAAP basis as defined under SEC rules. Reconciliations to GAAP amounts are included in PVH's first quarter 2018 earnings release, which can be found on www.pvh.com and in the Company's current report on Form 8-K furnished to the SEC in connection with the release.

At this time, I am pleased to turn the conference over to Mr. Manny Chirico, Chairman and CEO of PVH. Please go ahead.

Manny Chirico -- Chairman and Chief Executive Officer

Thank you, Ashley. Good morning. Joining me on the call is Mike Shaffer, our Chief Financial Officer; Dana Perlman, our Treasurer and Senior Vice President for Business Development and Investor Relations; and Ken Duane, our CEO for PVH Heritage brands.

I'm very pleased with the report in the first quarter. We posted a strong start to the year. Our first quarter results exceeded our expectations with broad-based strength across all our businesses globally. Our EPS increased 43% to $2.36, which was $0.11 above our previous guidance. Our revenues grew 16%, which was also above our plans and reflected momentum across all of our businesses globally.

There are a few highlights I'd like to share with you before going into our brand specific performance. First, our international businesses continued to experience great momentum and we are enthusiastic about the growth ahead of us in our Calvin Klein and Tommy Hilfiger businesses. Additionally, our increasing use of global and regional ambassadors and influences allow us to reach new consumers and build our share of voice globally, resulting in global market share gains.

I am also pleased to report that our North America businesses performed very well during the first quarter, both at wholesale and retail. We saw growth in our international tourist business in the United States and saw healthy demand from our domestic consumer during the first quarter, resulting in strong sell-throughs across all of our North America businesses.

Broad-based strength was also seen across all distribution channels -- wholesale, retail, and digital. And digital remained our fastest growing channel, with revenues growing over 20% across our third-party and owned and operated sites. We raised our earnings guidance by $0.05 for the year. This is despite the negative impact of the strengthening US dollar and it significant impact on foreign currency translation, which negatively impacted our earnings forecast for the year.

We more than offset this negative hit by significantly raising our underlying business forecast for the second quarter only, based on the momentum we are seeing in the business. Our new earnings per share guidance range implies earnings-per-share growth year-over-year of 14-15%, and we continue to conservatively forecast our second half sales and earnings trends versus the current business trends we're seeing in the business. Mike will fully quantify these amounts in his comments.

Now, moving on to the brand results. I'll begin with Tommy Hilfiger. Our Tommy Hilfiger business posted robust results and notably beat our first quarter plan across all regions. We attribute the strength to our consumer centric focus, which has shaped the way we engage with our consumers, develop our marketing plans, and connect with consumers in store and online.

As a reminder, we announced a few new exciting partnerships this spring. Tommy announced a multi-year strategic partnership with Formula One World Champions Mercedes-AMG Petronas Motorsports, and Tommy Hilfiger is now the official apparel sponsor and partner of Mercedes, building on the sports sponsorship heritage that Tommy has embraced since its founding as a brand. We also announced that Formula One World Champion Lewis Hamilton is now the Tommy Hilfiger Global Men's Ambassador.

As we continue to focus on our women's business, we just announced that model Hailey Baldwin and model and activist Winnie Harlow are the new Global Brand Ambassadors for Tommy Hilfiger Women's for the Fall 2018 season. Following our success on a multi-season relationship with Gigi Hadid, they will appear as the face of the Fall 2018 Tommy ICONS capsule collection for Women.

Moving to the business, Tommy's revenue increased 21% in the quarter, with earnings up 37%, driven by the strong revenue growth and gross margin expansion that we've seen across all businesses. Internationally, revenues increased 25% in the first quarter and retail comp store sales rose 9% with continued strength in Europe and Asia. Tommy Europe had another stellar quarter of outperformance. We continue to be quite pleased with the brand's health and positioning of the Tommy Hilfiger brand in Europe, which is allowing us to connect with new consumers and enabling us to gain more market share.

Our wholesale business continues to experience strong sell throughs and overall stellar results. As we look further into 2018, as we've previously announced, our Fall Holiday 2018 order book is up over 10%. In our retail business, comps were extremely healthy across all major markets in Europe, with strong sell throughs at retail and lower year-over-year promotions.

Tommy Asia also continues to perform very well, and we see great strength in our Tommy Hilfiger Japan business, particularly at retail and in digital e-commerce. Following our efforts to successfully reposition the brand, we are seeing strong results across Japan. Additionally, Tommy China continues to see a strong trajectory of growth as we continue to build out our operations and invest in the business, including leveraging our Local brand Ambassador Shawn Yue.

Moving to North America, our overall revenues were up 10% in North America. As we moved through the quarter, we saw great performance in our retail business, where comps rose 9%, due in part to improving international tourist traffic as well as healthy sales from our domestic shopper. We saw strength across all categories, which we attribute to our assortments and the impact of our consumer engagement activities. And we continue to see strong sell throughs on the wholesale side of the business with a very strong Macy's business in the first quarter across all major product categories.

On our licensing side, we continue to be extremely happy with the performance of our women's sportswear business, under G3, which is experiencing strong growth and excellent sell throughs and higher average unit retails. The brand continues to gain market share in North America across all channels.

Moving to Calvin Klein, the momentum around the CK brand has intensified with its cultural relevancy resonating and consumer interest in our evolving campaigns and engagement efforts to connect with a younger and wider audience. From the Kardashian/Jenner's to A$AP Rocky, Paris Jackson, Millie Bobby Brown, and other influences, including our Local Brand Ambassadors in key markets, our voice continues to be heard and our #mycalvins continues to perform well.

From a business perspective, revenues increased 18% for the first quarter, reflecting strong brand global trends, with a 25% increase coming from our international business in the first quarter. Total earnings were up 16% during the quarter. We continue to see strong topline growth out of Europe and China, with North America experiencing improving trends across all channels. North America comps were up 5% in the first quarter, and our international comp store sales increased 9% in the quarter.

On a regional basis, in Asia, Calvin Klein continues to preform well with improving trends across the region as well as the benefit of Chinese New Year in the first quarter. This strength builds upon the improved strength we saw in our Central and South Asia markets as well as our China business. China, which represents over half of the business, continues to outperform our other markets across all product categories. The Korea business posted another quarter of stabilization, which we are pleased with given the geopolitical and economic issues that have impacted that region for some time now. Overall, this broad-based strength gives us confidence in the long-term trajectory of this business in the Asia market.

Calvin Klein Europe continues to build upon the momentum delivered in 2017. As we've previously mentioned, our Fall 2018 order book is projected to be up again over 25%. May year-to-date, we are pleased with the strength across the business as we continue to see healthy sell through at retail.

Moving to North America, revenues were up 10%. Calvin Klein North America had as strong quarter overall with outperformance at both wholesale and retail. In our owned and operated retail business, we are pleased to see the continued progression in our comp trajectory and saw international tourists shopping our stores and nice performance out of all of our four categories.

At wholesale, we were pleased with the performance across our businesses, including underwear, sportswear, and our men's jeans business. Average unit retail rose across most of the key categories of Calvin Klein. Additionally, digital was the healthy channel, both with our department store customers and the pure play digital retailers. Looking ahead, we are excited about the upcoming brand initiatives for Calvin Klein, including our denim relaunch for the fall season.

Finally, in our heritage business, revenues for the quarter rose 5%, well above our plan, and included a positive impact from a wholesale timing shift as a result of certain shipments falling in the first quarter versus second quarter as previously planned.

In general, we saw nice performance across our wholesale business with continued share gains, and our retail business posted a 1% comp store sale increase. We are pleased with the performance of this business with earnings up over 30% over the prior year, particularly given some of the challenges that the US department store landscape has faced itself, including the Bon-Ton bankruptcy.

Lastly, in an effort to further adapt this business to the changing consumer landscape, we are excited to launch our heritage digital e-commerce site this summer, which will offer customers the option of buying our heritage brands on one site.

Looking to our outlook for the second quarter, overall very pleased with the first quarter performance and I'm proud of the progress that our teams are executing against our strategic plan in the face of the changing dynamics in the industry. Looking at the second quarter-to-date trends, we're off to a strong start in the quarter. From a regional basis perspective, our international businesses, continued to see great momentum with quarter-to-date comps at Tommy Hilfiger and Calvin Klein up high single digits.

In North America, we continue to see healthy trends despite the unseasonably cool spring weather in May, with our own North America comps up low single digits with very healthy margins as we are significantly less promotional than compared to last year. In our wholesale businesses, we are seeing very strong sell throughs across all of our North America customers. We believe that the incredible brand power behind Calvin Klein and Tommy Hilfiger continues to position us well in the marketplace against our competition and will drive continued momentum for the full year.

Thanks, Manny. The comments I'm about to make are based on non-GAAP results and are reconciled in our press release. In addition, due to the 53rd week in 2017, comp store sales for 2018 are more appropriately compared on a one-week shifted basis. Comp store sales discussed for the first quarter are compared with the 13 weeks ended May 7, 2017 instead of the 13 weeks ended April 30, 2017, which was the end of the prior year's first quarter.

Our reported revenues for the first quarter were up 16%, which exceeded our guidance and was inclusive of a 6% benefit from FX. Tommy Hilfiger revenues were very strong, up 21% inclusive of a 10% benefit from FX. The Tommy Hilfiger revenue increase was driven by strong performance in all regions and channels.

Both our Tommy Hilfiger International and North America cops were up 9%. Our Calvin Klein revenues were up 18%, inclusive of a 6% benefit from FX in the quarter. Calvin Klein International revenues increased 25%, inclusive of an 11% benefit from FX, driven by outstanding Europe and Asia performance.

Our international comp store sales were up 9%. Calvin Klein North America revenues increased 10%. Strong wholesale performance across all categories and retail comps of 5% drove the increase. Heritage revenues were up 5% to the prior year as a result of the timing of shipments which moved from quarter two to quarter one. Our heritage retail business comp store sales were up 1%.

Our non-GAAP earnings per share of $2.36 was 43% higher than the previous year and $0.11 better than the top end of our previous guidance. The EPS beat versus the previous guidance was driven by strong business across all of our brands and regions. Interest expense was favorable by $0.01, but offset by an unfavorable tax expense due to timing of $0.01.

We ended the quarter with inventories up 22% versus the prior year due to a shift in the timing of inventory receipts as a result of the 53rd week in 2017 and our projected sales increase for the second quarter. We've also made a decision to continue to invest in our basic and core products, and to hopefully continue to capitalize on opportunities that we see of the balance of the year.

For the full year 2018, we are projecting non-GAAP earnings per share to be $9.05-9.315, 14-15% growth over the prior year and a $0.05 increase compared to our previous guidance, despite a significantly reduced foreign currency benefit over the full year. Now included in our earnings per share guidance is the reduced positive impact of foreign currency translation of $0.12, with a $0.23 benefit reduction compared to our previous guidance of $0.35. Our new guidance, when compared to our prior guidance, reflects $0.28 of business improvement, offset in part by $0.23 of unfavorable currency. Overall, we are projecting revenues to grow approximately 6%, including the positive impact of 1% related to foreign currency.

Our updated revenue guidance includes a 1% increase related to underlying stronger business in local currency, offset by a 2% reduction related to foreign currency translation. Overall operating margins are expected to increase approximately 30 basis points for the company. Tommy Hilfiger revenues are planned to increase 7%, inclusive of a positive impact of 1% related to foreign currency. Tommy Hilfiger operating margins are planned to increase about 70 basis points.

We project Calvin Klein revenues to grow 8%, including the positive impact of 1% of foreign currency. We are also planning Calvin Klein operating margins to be down about 20 basis points due to our highest operating margin business, licensing, which will be down as a result of the impact of the Bon-Ton bankruptcy. In spite of the headwind created by the Bon-Ton bankruptcy filing, in our licensing business we are still planning Calvin Klein earnings growth to be in the high-single digits. Our heritage business is planned to have relatively flat revenues and flat operating margins and is negatively impacted as well by the Bon-Ton bankruptcy.

Interest expense for the year is planned to be about $120 million, compared to the prior year at $122 million. This decrease is the result of the lower interest EUR600 million bonds issued in December of 2017, partially offset by higher interest rates in some of our variable debt. In 2018, we are planning to pay down at least $250 million of our debt. Stock repurchases in 2018 are planned to be between $200-250 million. Our tax rate for the year is estimated at 14-15%.

As IRS regulations are expected to be issued later in 2018, related to the recent Tax Reform Act, our current estimates could be subject to change if the regulations differ from our current interpretation.

Second quarter non-GAAP earnings per share is planned at $2.05-2.10 and includes approximately $0.03 of estimated positive impact for foreign currency translation.

Revenue in the second quarter is projected to increase 10%, including positive impact of 1% related to foreign currency. Tommy Hilfiger revenues are planned at a 13% increase, including the positive impact of 1% on foreign currency. Calvin Klein revenues are planned at a 15% increase, including the positive impact of 1% related to foreign currency. Heritage brands are projected down 4% as shipments move into quarter one from quarter two. Interest expense is projected to about $30 million, and taxes to be 19-20% in the second quarter.

...

And with that, operator, we'll open it up for questions.

Questions and Answers:

Operator

[Operator Instructions] We will start with our first question from Erinn Murphy from Piper Jaffray. Your line is open.

Erinn Murphy -- Piper Jaffray -- Analyst

Great. Thanks. Good morning and congratulations on the quarter. My first question was on the Tommy Hilfiger brand. It was impressive that it was your fastest growing brand and largest brand. I would love to hear a little bit more about how you're thinking about the sustainability of this growth. And then, perhaps relatedly, if you could just speak to your current appetite of bringing in some of the indirectly operated regions for this brand? Thanks.

Manny Chirico -- Chairman and Chief Executive Officer

Sure. On the first part, the momentum seems to be really strong for the brand as we look at the second half. Given the strength that we've seen in that business, we've continued to project conservatively, but given the trends in the business, it would seem like there was potential in the second half of significantly more upside, both in Europe and in Asia, as well as the momentum we're seeing here in North America given the comp store performance that's been high single digits and much higher operating margin.

So, that strength just continues. We don't see that abating as we move into the second half of the year or beyond. In addition, the possibility for bringing in other licensed business -- I think the one that makes the most sense to us is our Central Southeast Asia business, which includes Hong Kong, Macau -- what might be described as greater China -- and then beyond that. From that perspective, that's a healthy business that I think, given licensing terms and where we are in the next 12 months, is something we'd like to see brought into the business.

The other area we'd like to see brought into the business, from a regional perspective, is Brazil. There, we have a longer-term license, but we constantly discuss the opportunity with our joint venture partner there. So, that's an opportunity we'll look at given the strength of the Calvin brand in that region, even though the region there is under pressure. We think, as you look out 6-18 months, that region will start to see some positive growth, hopefully.

Erinn Murphy -- Piper Jaffray -- Analyst

Okay. That's helpful. And then, just on Calvin, could you speak to more about the performance of the newer categories in Europe, like men's sportswear? And then, how should we think about the rollout of further categories for this brand across Europe over the next 12-24 months?

Manny Chirico -- Chairman and Chief Executive Officer

Sure. In Europe, the brand continues to be, from a volume point of view, really focused on jeans, underwear, and to some degree, accessories. Seeing very strong growth in those categories. Men's sportswear is still a relatively small business growing at a significantly high percentage, but on a relatively small business it gives us opportunity for growth there.

The big opportunity is the whole women's category, both sportswear, the performance area -- both the men's and women's -- as we look out, and growing that accessory component of the business to a greater extent, including footwear. So, that's how we see the brand rounding out. If you think about the size of the Calvin business, I always say this is about 40% of the size of the Tommy business, that would be our goal to more or less double the business today, which we think will cross $1 billion this year -- or close to it. So, that gives us that ability, as we move forward.

And those are categories that globally have been very successful for us. Men's and women's sportswear are the biggest categories for us here in North America. We have a very healthy footwear and accessory business here in North America. Taking those to Europe seemed like clearly both categories are brand appropriate and give us the ability to really enhance the growth as we move out. So, that white space opportunity seems like it's all in front of us.

Erinn Murphy -- Piper Jaffray -- Analyst

Great. Thank you, guys, and all the best.

Operator

We'll go to our next question from Bob Drbul from Guggenheim. Your line is open.

Robert Drbul -- Guggenheim Securities, LLC -- Analyst

Hi. Good morning. Manny, both in the US and the international side, can you talk about what you're seeing from a tourism perspective and how that's impacting your business? And, can you talk to your decision in terms of market-to-market on the foreign exchange? How are you approaching it as you think about investments in the business and the ongoing earnings power of the company?

Manny Chirico -- Chairman and Chief Executive Officer

So, on the first part of the question, on international tourism -- here in North America, we've clearly seen a pop there. I would say the key regions where we're seeing growth are China, first and foremost -- that consumer, both in Calvin and Tommy. And we're seeing the Brazilian consumer come back to the United States in a more meaningful way. That's a big driver of our retail businesses in particular. The European consumer is healthy, and we see that happening in our business as well. In Europe, the biggest driver, from an international point of view, is China. That part of the business is very healthy, and we seem to be doing very well in our European business with the tourism component.

Even in Asia, when you look at the Chinese consumer, shopping outside of China, is becoming more and more meaningful. Clearly, our business in Japan is benefiting from that. We believe, as the situation in Korea stabilizes, we'll really see a pop of business there. We're hoping to see that in the second half of this fiscal year, as the relationships there settle down. That could be very meaningful to that business that's been under pressure. I think that answers it.

On the currency side, I'm going to turn it over to Mike to talk about it.

Yeah, Bob. In terms of investment, we look at the long-term. So, short-term blips on currency, we just wouldn't pull back our maneuver. We do look at our hedging policies. We operate in ranges there, so if we feel there is a tremendous amount of volatility, we may go more toward the high end of our range. And if they feel the world is a more stable place, we could be more toward the low end. But, for the most part, we tend to not place bets and tend to be more consistent in our approach in hedging. And investments are really about looking at the long-term.

Manny Chirico -- Chairman and Chief Executive Officer

Bob, given the strengthening dollar, buying international assets, like taking back licensing businesses internationally, or looking at potential brand acquisitions outside the United States, given the strengthening dollar compared to where it was two or three years ago, it becomes more attractive on that level. We look at all those things, and we try to factor in. We don't try to play the currency game.

Robert Drbul -- Guggenheim Securities, LLC -- Analyst

Great. Thank you very much, Manny and Mike.

Operator

[Operator Instructions] We'll go to our next question from Matthew Boss from JP Morgan. Your line is open.

Grace Smalley -- J.P. Morgan -- Analyst

Hi. Good morning, this is Grace Smalley on for Matt. Can you comment on whether you still expect gross margins up 90 basis points for the full year? And if so, what do you expect to drive that? And then, how do you see the gross margin opportunity as you look further out, beyond this year? Thank you.

So, we do see the gross margin opportunity for this year remaining at about 90 basis points. First quarter, we were up about 150 basis points. A lot of that was driven by mix, but we also had a significant amount of performance as well. The Chinese New Year falling into the first quarter this year, moved some of that business to a very high gross margin, high operating margin, business. And, the currencies -- the FX piece -- the higher exchanges in the first quarter also played a component on the mix.

As we look to the second, third, and fourth quarter, we will see gross margin improvement. But, it will be at a more moderated pace. A lot of that improvement will come from both the Calvin and Tommy opportunities, as those businesses just continue to outperform.

Manny Chirico -- Chairman and Chief Executive Officer

Next question?

Operator

We'll go to our next question from Michael Binetti from Credit Suisse. Your line is open.

Michael Binetti -- Credit Suisse -- Analyst

Good morning. Thanks for taking our questions. Can I just ask about CK? For Calvin, the order books continue to point to big growth rates in the parts of the business that you do comment on, that people in RC look to for leading indicators. Those have been really strong for some time. As you get steeper and steeper into the multiyear compares here, lapping your own successes there, can you comment on the longer term? How do you think about what we're going to hear about order books as we roll forward to the back half of this year and into next year, how much that brand can keep putting up those growth rates in places in Europe, with 20%, numbers in front of it? How durable are those rates to you and any comment on why?

Manny Chirico -- Chairman and Chief Executive Officer

It's like anything else, you become a victim of your own success as you continue to grow. The numbers get bigger. But, the ability to continue to put up double digit growth in Europe seems to be right ahead of us, given just the market opportunities available to us as we expand into some of these newer categories. We'd be disappointed if, in the foreseeable future -- the next 24 months -- we didn't continue to see high double digit topline growth in Europe and continue to feed that as we go forward. That seems to be there for us to really capture and grow as we move forward.

Michael Binetti -- Credit Suisse -- Analyst

On the margins, you've commented on the margins being a little lower this year. Bon-Ton seems to be the big callout -- the licensing business there, which we know has a high flow through. But, excluding that, it seems like you were heading toward positive margin expansion for CK for the first time in several years. I know there are a lot of moving parts that cause that on the mix for CK, but can you help us think a little bit longer term about the margin rates for that business? For one thing, you're very happy with the marketing program over there and that spending is landing on great revenues, but is there a leverage point where --

Manny Chirico -- Chairman and Chief Executive Officer

[Crosstalk] Mike, I think you've hit it. We've made a conscious effort to invest behind the brand and to build, from a long-term perspective, the fashion relevancy of that brand, particularly with the investments we've made on the design side, bringing Raf Simons and Peter Mueller into the business. Their teams that they've brought, we think is really going to enhance the long-term growth of the brand and positioning of the brand as a premium label. So, there's 200 basis points of margin opportunity in the Calvin Klein business that I think, over the next three to four years, we should begin to capture. There's no reason why the Tommy business should be operating at a higher margin that the Calvin business, except that we've made the decision to make some of these investments in the most premium portion of the business to enhance the brand position that we think will pay off for us in the long-term, over the next three to four years.

That's been the strategy. It continues to be the strategy. And that continues to be the opportunity to add a couple hundred basis points to the Calvin business.

Michael Binetti -- Credit Suisse -- Analyst

Very helpful. Thanks a lot, and congrats on a great quarter.

Operator

We'll go to our next question from John Kernan from Cowen & Co. Your line is open.

John Kernan -- Cowen & Co. -- Analyst

Good morning. Congrats on the execution. Manny, can you talk a little bit about Tommy Hilfiger in North America? You did a 10 comp in the fourth quarter. You did a nine in the first quarter. The operating margin expansion in that business for the past 12 months has been very significant. How do we think about the margin profile on that part of the business? I think it's 300 basis points below your peak set several years back. But, there seems to be a lot of momentum, not just on the topline, but also on the profitability side of things for Tommy within North America.

Manny Chirico -- Chairman and Chief Executive Officer

John, I couldn't agree more. I think we are being conservative on our projections on that portion of the business when we look at it both from a sales perspective where we're targeting low single digit comp store growth for the balance of the year. We're targeting minimal margin expansion in that business as we move forward, coming off of a strong second half of last year. But, all indicators are that the opportunity is far greater than that this year, given the momentum in the brand overall and the momentum in the business that we're seeing. I think that business was the business that was most impacted by the currency strengthening of the US dollar against the foreign currencies in the major areas.

That consumer starts to come back. An international consumer and tourist comes back to the United States, the brand that benefits the most from that is the Tommy Hilfiger brand, given the strength of the Tommy Hilfiger brand globally. So that puts a lot of opportunity on the pays that are not factored in our numbers and our projections. Getting back to that peak performance of 300 basis points, would require the Euro to move closer back to those $1.30 ranges and where you had such a significant change. But, clearly to get back half of that is well within our sights as we move forward.

The way the team's managing it -- I think you see it in our inventory position. We've been a little bit more aggressive, especially in core categories, to go after the inventory and have it on hand in order to fulfill and satisfy that potential opportunity. Our inventory growth has exceeded our sales expectations that we put on paper, but it gives us the opportunity to really drive that business and we feel there is much more opportunity and risk given that equation. We're thoughtfully thinking about that, to try to capture that opportunity in the second half of the year.

John Kernan -- Cowen & Co. -- Analyst

Sounds exciting. You've done some big M&A transactions over time and you've used your balance sheet very effectively. It sounds like your focus right on bringing licenses back in house -- you talked about Central and Southeast Asia and Brazil. How are you thinking about the balance sheet, the M&A environment, the opportunity to bring another powerhouse type brand into the portfolio, or maybe smaller niche brands that seem to be popping up everywhere? Just thoughts on M&A.

Manny Chirico -- Chairman and Chief Executive Officer

On the first part about bringing licenses back in, it's a lot easier to talk about those because we've been talking about them. It's pretty clear, given the licensing renewal dates and where things sit, what's ahead of us. You can talk about those things much more. Obviously, whatever we might be looking at from an additional brand -- be it a global brand or niche brand -- I'm not going to talk about it at all.

Point two, the balance sheet is very strong. We were just upgraded at the rating agencies to investment grade and really put us in a strong position there from a balance sheet point of view, to take advantage of any opportunities that present itself. We'd love to do a deal. We'll do it when it's right. I think we've demonstrated that in the past and we're not going to overpay and pay crazy multiples. But, we will definitely look to find the right kind of brand that could fit into the portfolio and, given the operating platforms we have around the world, I think we uniquely qualify to take a brand that has global opportunity and quickly grow it. That would be our hope as we move forward.

John Kernan -- Cowen & Co. -- Analyst

Thanks, everybody. Best of luck.

Operator

We'll go to our next question from Ike Boruchow from Wells Fargo. Your line is open.

Nancy Lee -- Wells Fargo Securities -- Analyst

Hi, everyone, this is Nancy on for Ike. Congratulations on a great quarter. Your comps and performance were outstanding. Can you talk a little bit about the health of the broader retail market? Tourism has helped at outlets, but can you talk about your view on that going forward, and the health of the department stores more broadly after Bon-Ton and everything? To follow up on guidance, could you touch on SG&A implications for the rest of the year and any planned investments in marketing or otherwise?

Manny Chirico -- Chairman and Chief Executive Officer

Sure. On the broad retail market, I'm not going to speak about specific retailers, but every indicator here in North America is that the consumer's very healthy. I don't see everyone's business. I see our business at everyone, and couldn't be happier with how we're performing at wholesale here in North America. Calvin, Tommy, and heritage brands -- the business is just very healthy. What's really nice about the business is inventory in the department store pipeline are lower, very much under control, and give the opportunity for margin expansion for both the department stores and for us as we move forward. That's a real win. I really commend the way the industry has managed their inventory levels.

When you walk into a store, it's so much cleaner today than it was this time last year for Father's Day. As we're starting to set up, you just see a better assortment of merchandise across the board. That's from Macy's to Kohls -- we see it with our big accounts.

From a marketing point of view, I think our plans are pretty clear. We've increased the marketing again for this year. As we outperform, we could again increase those budgets. But clearly, we'll be looking to increase our earnings by a greater amount. But, taking that incremental benefit that would come from better business and investing back into the brands would be our plans. I think, given some of the platforms that we have going forward with our brand ambassadors in Calvin and Tommy, and some of the real interesting things we're going with our heritage brands, there's plenty of opportunity for us to make some wise investments going forward.

Nancy Lee -- Wells Fargo Securities -- Analyst

Thanks so much. Best of luck.

Operator

And our next question comes from Heather Balsky from Bank of America Merrill Lynch. Your line is open.

Heather Balsky -- Bank of America Merrill Lynch -- Analyst

Thank you for taking my question. Some of your brand competitors are looking to take back share. When you look across the strategies you have in place and the investments you've made, what stands out in terms of maintaining your momentum and keeping your competitive edge going forward?

Manny Chirico -- Chairman and Chief Executive Officer

We talked about marketing. What we're not doing in marketing is what was done in the past, which was spreads in magazines and whatever. We're trying to enhance the consumer experience. We're doing that online and in store. We're trying to bring assets to the store, both our wholesale partners and our own retail stores, to bring them assets that, at point of sale, in the hot zone, when the consumer is making decisions, to have an impact at retail with that consumer. At the same time, we want to make sure that our marketing in store connects back to what we're doing online, outdoor, print, and television across the board.

I think the teams have done an amazing job of making the connection back throughout the marketing cycle, be it in store, in print, or on television. Whatever we're doing, it's seamless and connects back and forth. When you cut through it all, we're trying to bring the consumer into the brand experience -- make them part of the brand experience, engage them. It's opened up a new consumer that's much younger. We're introducing both the Calvin Klein and Tommy Hilfiger brands to a much younger consumer, engaging with them, and transacting with them -- both in store and online. That's been the focal point and that will continue to be the focal point.

Heather Balsky -- Bank of America Merrill Lynch -- Analyst

Thank you. Just a follow-up on the wholesale channel, inventory has been very lean and you talked about inventories looking good in 2Q. With trends faring better and comps improving, how is inventory being managed at the back half? Do you expect things to remain lean or could we see inventory start to pick up?

Manny Chirico -- Chairman and Chief Executive Officer

Every indicator that I see is that retails continue to be disciplined and continue to buy tightly. We're trying to push more of the burden onto the brands to back up inventory, particularly in core replenishment. We're doing that where it makes sense for us and for them, to try and capture that business. The best I can tell, from everything I'm seeing in the market and talking to our teams, the open to buy dollars have been shrunken tighter. All of us have made significant investments in our product cycle and our speed to market initiatives.

So, the supply chain has just gotten quicker. We've been able to react much faster, particularly on key core replenishment products that we need to get back into quickly. Being able to move color faster and being able to react to what's happening with the consumer -- and doing more testing of styles and colors ahead of season to get better insight as we move forward. There has been a significant benefit that's coming to us from the investments we've made in our supply chain.

Heather Balsky -- Bank of America Merrill Lynch -- Analyst

Thank you very much.

Operator

And our next question comes from Tiffany Kanaga from Deutsche Bank. Your line is open.

Tiffany Kanaga -- Deutsche Bank -- Analyst

Hi. Thanks so much for taking our questions. I wanted to circle back to your May commentary, where you talked about some good momentum in trends quarter-to-date, especially in the international business. Is the low single digit North America comp that you're seeing so far in line with or different from your initial plan? As I compare it to your first quarter performance, which was a bit higher, but I know compares, and you talked about targeting low single digits for the balance of the year. How would you range the impact of cooler weather versus less promotional activity? Additionally, given your statements around promotions and what John asked earlier, would it be accurate to say you might be shifting some focus away from sales growth and toward margin? Thanks.

Manny Chirico -- Chairman and Chief Executive Officer

Two things. May has been a really funny month here in North America. Look outside the window today. It hasn't really felt like spring. I feel like, especially as we went into the middle of May, there was a bit of softness in the business, which has clearly just turned around. There are significantly less promotions going on in all channels of distribution, and with our products. So, we're seeing very healthy margin growth.

That doesn't mean we're not focused on the topline growth, as you can see from the inventory investments that we're making. But, in a two- to three-week period, to see that kind of weather impact and continuing to meet or exceed our sales plans, just gives us great confidence as we go forward. It really feels very strong as we're setting up for Father's Day, as the weather starts to get warmer and more seasonal, I think that'll just play into our strength as we move forward.

We are very optimistic about the North America retail business and our related wholesales businesses as well. The fact that inventories are tighter and it's creating margin is great, and I think that'll continue to be a message. But, I think we're also trying to position ourselves to capture the sales growth we see in the second quarter and beyond for the year, given the inventory investments we're making in our core replenishment product.

We feel enthusiastic about. Sequentially, it looks like it dropped of a couple hundred basis points from a comp point of view, but the margin expansion has just been more than offset for that. That was a healthy way to play the whole Memorial Day weekend.

Tiffany Kanaga -- Deutsche Bank -- Analyst

Thank you very much.

Manny Chirico -- Chairman and Chief Executive Officer

We're going to take one more question as we're approaching 10:00.

Operator

Our last question comes from Omar Saad from Evercore ISI. Your line is open.

Omar Saad -- Evercore ISI -- Analyst

Thanks for taking my question. Great quarter. Manny, I want to follow-up on a question a little bit earlier around social media and digital marketing. It seemed like a tone change on a view, your confidence in that marketing strategy paying dividends. Is there something that's changed in the last couple quarters, giving you that confidence around that digital marketing strategy that you've been deploying for a few years no?

Manny Chirico -- Chairman and Chief Executive Officer

No. I wouldn't read too much into the tone of my voice. We are very enthusiastic about -- we've been enthusiastic, continue to be enthusiastic. I think the results speak for themselves, 16% topline growth. It's happening because there's great product, but it's also happening because we're connecting with the consumer. I think, from a competitive point of view, as I look out, to be fair, as a lot of our competitors have had more challenging times, it seems like the marketing has also pulled back. So, I think we've just been gaining a greater share of voice over the last six to nine months as we've gone forward.

And the two brands -- we're in a cycle right now, given the momentum with those two brands. It's a bit of a '90s renaissance that's gone on as well. We've been able to really take advantage of that and drive the business. I think we'll continue to do that. The confidence you're hearing in my voice has more to do with our performance than just our marketing, which I think is part of the performance.

Omar Saad -- Evercore ISI -- Analyst

Got it. That's helpful. Any update on 2015 West 39th? What's happening with that business and Raf's role in the brand and how you're trying to activate some of those more premium elements globally?

Manny Chirico -- Chairman and Chief Executive Officer

Sure. It's a relatively small business when you just look at the massive size of the $9 billion Calvin Klein business, but it's so important to the brand. The success that we're seeing with that line at retail and into our key retail accounts and getting the kind of positioning in the major doors like Barneys and Neiman's here in North America. If you go overseas, Harrods and Lane Crawford -- to really get that kind of presence and see that brand position so well there, just creates the halo we were looking for from that component of the business.

It's working exactly as we thought. We couldn't be happier with Raf's contributions to the brand and how it's benefited not just the 205 business, but clearly what's going on in our jeans and underwear business, in particular, where we've put a real focus on the marketing investment. As you go into spring, but really into Fall 2018, you're going to see that black thread that starts with the 205 collection carried through our jeans, sportswear, and our underwear business. You'll see that carry through. That just has to be an enhancement for the brand and will hopefully propel us as we move forward.

Omar Saad -- Evercore ISI -- Analyst

Any update on Amazon, the longer you've had that relationship under your belt? What you're learning and maybe how you think about it relative to your other, more traditional, channels? Thanks.

Manny Chirico -- Chairman and Chief Executive Officer

I don't like to speak about one customer. I'll speak about our pure play and our dot-com Macy's business. What's been fascinating is how we've been connecting the business, both in store and online -- how we've been able to have consistent messages and how we've been able to increase the businesses in both categories, but clearly the percentage growth has been dramatically higher in the online business. Our penetration continues to grow there. I think it's critical because it's very hard to determine where the sale is being generated and it might actually transact in store, but so much of that is being driven on the online investigation that the consumer is doing as she explores our brands online. Those investments pay dividends for us in store, with our Macy's business -- which couldn't be healthier.

But, at the same time, our online business with pure plays like Amazon and Alibaba continue to grow significantly because we're connecting with that consumer and we're connecting with a younger consumer who is more and more comfortable shopping in that channel. That's really worked exceedingly well for us.

With that, we're going to close the conference for today. I want to thank everyone for joining us. Have a great weekend. We look forward to speaking to you in August on our second quarter call. Have a great day.

...

Operator

That concludes today's conference. Thank you for your participation. You may now disconnect.

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